Why There Probably Won’t Be Another Major Financial Crisis in America

TWith Banks ‘Still Too Big to Fail,’ Another Financial Meltdown Looms

Yaawn been reading these doom and gloom predictions since 2009

Although the doom & gloom media makes it seem like financial crisis are a common occurrence, there have only been two major crisis (1929 & 2008) in the United Sates over the past 100 years, with an 80-year gap between them. That should give you an idea of how rare they are.
Too big to fail policy such as TARP has been a success though. Eight years later, and still not the slightest hint of trouble in the financial sector. In fact, with stricter lending standards, less leverage, and fatter balance sheets, thing are better than they have ever been.
So I would not be losing sleep over a meltdown, although the financial media whose job it is to scare people for ad revenue will try to make you sell your stocks into irrational panic.

Low rates are sustainable and are a function of insatiable demand for US debt as part of a global ‘flight to safety’ and ‘hunt for yield’. Europe’s QE is helping to push the rates on 10-30 year German bonds close to zero, so money in search of yield is flowing into US bonds that offer a higher yield. Emerging market debt is too risky and tends to have negative inflation adjusted return despite high nominal yields. Also, the left ignores how the Savings and Loan Crisis was caused by rates being too high, not to low, so it’s not like you can squarely blame all crisis on low interest rates. Paul Volcker, who is a hero to the left for raising rates in the late 70′s during his disastrous tenure as fed chairman and then later attacking bankers as an adviser to Obama, caused the crisis.

There is also a ‘recency bias’ in play in that it’s understandable for people to believe that because a crisis happened just six years ago, there will likely be another one, as the first crisis is still fresh in people’s memories. However, recency is not proof or evidence that there will be another crisis. It’s like predicting immediately after the sinking of the Titanic there will be more disasters like or worse than the Titanic, when in fact, the opposite happened and ocean liners became safer due to increased safety measures and improved technology, and a century later there has yet to be an American or Great Britain civilian peace time maritime disaster as bad as the Titanic. Or, citing America’s then recent use of nuclear weapons against Japan in WW2, predicting nuclear warfare during the Cold War. But despite nuclear proliferation and the one-time use of nuclear weapons, there has yet to be nuclear war.

The financial media needs to focus on its main priority which is reporting the news instead of front-running crisis, but I guess if there isn’t an actual crisis the alternative is to try conjure one out of thin air.